Role of Information Technology in Indianeconomy

7/29/2019 Role of Information Technology in Indianeconomy

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OBJECTIVE OF STUDY

This paper discusses the possibilities for broad-based IT-led economic growth in India,

including increasing value-added, using better telecom links to capture more benefits

domestically through offshore development for developed country firms, greater spillovers

to the local economy, broadening the IT industry with production of telecom accessdevices, improving the functioning of the economy through a more extensive and denser

communications network, and improving governance

RESEARCH DESIGN

Research design is important because of the increased complexity in the market as wellas marketing approaches available to the researchers. In fact it is the key to theevaluation of successful marketing strategies and programmers. It is an important tool tostudy buyer`s behavior, consumption pattern, brand loyalty and focus market change. A

research design specifies the methods and procedures for conducting a particular study.According to Kerlinger, Research design is a plan, conceptual structure, and strategy ofinvestigation conceived as to obtain answers to research questions and to controlvariance.

A research design is a detailed blueprint used to guide a research study towards itsobjectives. The process of designing a research study involves many interrelateddecisions. The most significant decision is the choice of research approach, because itdetermines how the information will be obtained.To design something also means to ensure that the pieces fit together. The achievementof this fit among objective, research approach, and research tactics is inherently aniterative process in which earlier decisions are constantly reconsidered in light of

subsequent decision

DATA COLLECTION

The task of data collection begins after problems have been identified. While decidingambitious the method of data collection to be used for the study the researcher shouldkeep in mind two types of data viz, primary data and secondary.The primary data are those, which are collected afresh and for first time and thus happento be original in character. The secondary are those which have been collected bysomeone else and which have already been passed through statistical process.The researcher would have to decide which sort of data he would be using for his study.

The method collecting primary and secondary data differ since primary data are to beoriginally collected while in case of secondary data the nature of data collection work ismerely that of compilation.There are several ways of collecting primary data. They are as follows:

1. Observation method2.Interviewmethod3.Throughquestionnaires4. Through schedules


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OBSERVATION METHOD

Observation becomes a scientific tool and the method of data collection for the researcherwhen it serves a formulated research. Purpose is systematically planned and recordedand is subjected to checks and controls on validity and reliability. Under the observation

method the information is sought by way of investigators own direct observation withoutasking from respondent

Survey (questionnaire to public)

Surveys are concerned with decribing, recording, analyzing, and interpreting conditionsthat exist or existed. The researcher does not manipulate the variable or arrange FOREVENTS TO happen. Surveys are only concerned with conditions or relationships thatexist., opinions that are held, process that are going on, effects that are evident or trendsthat are developing. They are primarily concerned with present but at times do considerpast events and influences as they relate to current conditions.

1) surveys type research usually have larger samples because percentage of responsesgenerally happen to be low ,as low as 20% to 30% ,especially in mailed questionnairestudies thus, the survey method gathers data relatively from the larger number of cases ata peculiar times.

2) Surveys are the example of field research and are concerned with hypothesisformulation and testing analysis of the relationships between non-manipulated variables.

3) Surveys may either be census or sample surveys they may also be classified as social

surveys, public opinions surveys.

COLLECTION OF SECONDARY DATASecondary data means that are already available that is they refer to the data, which havealready been collected and analyzed by someone else. When the researcher utilizessecondary data, then he has to look into various sources from where he can obtain them.In this case he is certainly not confronted with the problems that are usually associatedwith the collection of original data. Secondary data may be either published orunpublished data.Reports prepared by various scholars universities economists etc in different field.Public records and statistics, historical documents and other sources of publishinformation. The sources of unpublished data are many; they may be found in diaries,letters unpublished biographies and autobiographies and also may be available withscholars research workers. Trade organization, labor bureaus and other public/privateorganizations.This report is based on secondary data. I have collected data from various personnel fromIT industries ex. TCS,INFOSYS,WIPRO. I have collected data from various article OECDdigital economy papers, OECD development centre working paper,various websitesincluding NASSCOM AND IBEF. I also referred various news paper to collect recentinformation.


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Literature review

IT by now has become an integral part of peoples everyday lives, including theeconomic sphere. Hence, IT has been subject to a plethora of studies on how exactlyIT is changing the economy. While on the one hand this helps illustrate the various

aspects of how IT affects production processes, efficiency and output growth, theabundance of studies also causes confusion arising from a broad literature at differentlevels of aggregation, studying different IT products and using different methods.Further, many of the studies have contradictory findings both at the qualitative (e.g.finding different answers to the question of whether IT is a General PurposeTechnology) and the quantitative (e.g. obtaining different point estimates for the outputelasticity of IT investment) level.

In his meta-analysis, Stiroh (2005) summarises the effects of IT on productivity andoutput by estimating them econometrically. He shows that the inclusion of fixed

effects or estimation in first differences tends to lower the estimated IT elasticity, whilemore aggregated data or utilisation of more recent data revisions tends to raise it.According to Brynjolfsson and Yang (1996), who surveyed more than 150 studies,there were neither robust findings on the link between IT and productivity during the1980s and early 1990s, nor was it possible to measure this accurately due to lack ofdata and use of inadequate analytical methods.

By contrast, Melville et al. (2004) conclude that IT investments indeed provide value, butthe impact of IT spending depends on levels of complementary resources,competitive climate, and the general macroeconomic environment. Moreover,synergies between technical and human IT resources only provide short-lived

competitive advantage. In their survey on broadband and its contributions to economicgrowth Holt and Jamison (2009) suggest that broadband has had a positive impactoverall, but the quantitative impact could not be measured with great precision. Thereview by Oz (2005) highlights the challenges researchers face and proposes a simpletheory to explain the diminishing contribution of IT.

According to Kenneth Keniston

government action, and equally important, action on the part of the successful

profit-making IT firms, is of great importance for economic developement of india .Thechallenge is to learn whether, if, when, and how information technologies of all kinds canbe the most cost-effective means to help ordinary people meet their basic needs andclaim their fundamental rights.


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INTRODUCTION

Information Technology Association of America (ITAA) defined IT as:

"The study, design, development, implementation, support or management of computer-

based information system, particularly software applications and computer hardware. ITdeals with the use of electronic computers and computer software to convert, store,

protect, process, transmit, and securely retrieve information.

Information technology is a general term that describes any technology that helps to

produce, manipulate, store, communicate, and/or disseminate information

IT SECTOR CLASSIFICATION:

1.IT- Software These companies help in developing and implementation of differentsoftware for their clients worldwide. These software could be for documentation, security

services, banking softwares etc.

2. ITeS Business process outsourcing (BPO) Major Corporations across the world

outsource their back-office operations to some companies. E.g. Employee payroll for a US

companys global workforce is maintained by an Indian BPO. Slowly the definition is

expanding to Human resources, accounting, logistics, legal processes etc.

3. IT- Hardware and peripherals - The stuff you can actually see and touch, and would

likely break if you threw it out a fifth-story window, is hardware. This would includelaptops, desktops, Storage devices, Networking devices, LCD, printers etc.

4. IT- Education This segment provides training for employment in the other segments.

This would include companies providing various certification courses, like Java, Oracle

etc. These companies also provide training for employees in corporate sector. Recently,

some companies have also expanded this service to cater to schools and colleges.

This sector has made significant contributions to Indias economic growth in terms of GDP

increase, foreign exchange earnings as well as employment generation. Its contribution to

GDP has increased tenfold in last decade, from 0.6% to 6% till 2009-10. The sector has

helped India transform from a rural and agriculture-based economy to a knowledge-based

economy. Besides this, the lives of people have been positively influenced by direct or

indirect contribution of IT sector to various parameters such as employment, standard of

living, per-capita income etc.The computer systems design and related services industry

is among the economy's largest and fastest sources of employment growth. Employment

increased by 616,000 over the 1994-2004 period, posting a staggering 8.0-percent annual

growth rate. The projected 2004-14 employment increase of 453,000 translates into 1.6

million jobs, and represents a relatively slower annual growth rate of 3.4 percent as

productivity increases and offshore outsourcing take their toll. ("Industry output andemployment projections to 2014" by Jay M. Berman, Bureau of Labor Statistics)
http://en.wikipedia.org/wiki/Information_Technology_Association_of_Americahttp://en.wikipedia.org/wiki/Computershttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Data_conversionhttp://en.wikipedia.org/wiki/Computer_data_storagehttp://en.wikipedia.org/wiki/Data_securityhttp://en.wikipedia.org/wiki/Data_processinghttp://en.wikipedia.org/wiki/Data_transmissionhttp://en.wikipedia.org/wiki/Classified_informationhttp://en.wikipedia.org/wiki/Information_retrievalhttp://en.wikipedia.org/wiki/Informationhttp://en.wikipedia.org/wiki/Informationhttp://en.wikipedia.org/wiki/Information_retrievalhttp://en.wikipedia.org/wiki/Classified_informationhttp://en.wikipedia.org/wiki/Data_transmissionhttp://en.wikipedia.org/wiki/Data_processinghttp://en.wikipedia.org/wiki/Data_securityhttp://en.wikipedia.org/wiki/Computer_data_storagehttp://en.wikipedia.org/wiki/Data_conversionhttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Computershttp://en.wikipedia.org/wiki/Information_Technology_Association_of_America


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However, the main growth catalyst for this industry is expected to be the persistent

evolution of technology and business' constant effort to absorb and integrate these

resources to enhance their productivity and expand their market opportunities.

The growth of the Indian software industry has been primarily due to the offshore

outsourcing of IT requirements, especially software services, by corporations in the

US. It is advantageous for corporations in the US and other western countries to

outsource their IT requirements to India (and other developing countries), due to:

1. The large availability of highly skilled technical manpower at a low cost.

2. The time difference with respect to the US and other developed markets (which enables

companies to offer a 24-hour development cycle)

3. High quality of work.

Employment of computer and information systems managers is expected to grow between

18 to 26 percent for all occupations through the year 2014. (Career Guide to Industries

2006-07)

The Indian IT sector is growing rapidly and it has already made its presence felt in all

parts of the world. IT has a major role in strengthening the economic and technical

foundations of India. Indian professionals are setting up examples of their proficiency in

IT, in India as well as abroad

In India Electronics and Information Technology is still the fastest growing segment both in

terms of production and exports. With complete delicensing of the electronics industry with

the exception of aerospace and defence electronics, and alongwith the liberalization in

foreign investment and export-import policies of the entire economy, this sector is not only

attracting significant attention as a enormous market but also as a potential production

base by international companies.

The Indian Information Technology sector has shown remarkable resilience in the year

2008. Continuing on its established track record, the overall Indian IT-BPO revenue

aggregate is expected to grow by over 33 per cent and reach US$ 64 billion by the end of

the current fiscal year 2008-09as compared to US$ 48.1 billion in fiscal year 2006-07.

Industry performance was marked by sustained double-digit revenue growth, steady

expansion into newer service-lines and increased geographic penetration, and an

unprecedented rise in investments by Multinational Corporations (MNCs) - in spite of

lingering concerns about gaps in talent and infrastructure impacting India's cost

competitiveness.


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The Indian IT-BPO sector has built a strong reputation for its high standards of service

quality and information security - which has been acknowledged globally and has helped

enhance buyer confidence. The industry continues its drive to set global benchmarks in

quality and information security through a combination of provider and industry-level

initiatives and at strengthening the overall frameworks, creating greater awareness and

facilitating wider adoption of standards and best practices. The Data Security Council of

India (DSCI) was launched in 2008 to institutionalize efforts to further enhance the

information security environment in India.

High offshore component of delivery and superior execution in multi-location delivery

continue to be key differentiators. Broad-based industry structure; IT led by large Indian

firms, BPO by a mix of Indian and MNC third-party providers and captives, reflects the

depth of the supply-base. While the larger players continue to lead growth, gradually

increasing their share in the industry aggregate; several high-performing Small and

Medium Enterprises (SMEs) also stand out. Today, India leads the world in terms of thenumber of quality certifications achieved by centres in any single country. As of December

2008, over 498 Indiabased centres (both Indian firms as well as MNC owned captives)

had acquired quality certifications with 85 companies certified at Software Engineering

Institute (SEI), Carnegie Mellon Capability Maturity Model (CMM) Level 5 - higher than

any other country.

The US and the UK remain the key markets for Indian IT-BPO exports (excluding

hardware), accounting for nearly 80 per cent of the total exports. This comes as no

surprise as these two markets account for the largest share of worldwide technology

spends.

With a large pool of skilled manpower - chartered accountants, doctors, MBAs, lawyers,

research analysts - India would be able to add value to the global KPO business and its

high-end processes like valuation research, investment research, patent filing, legal and

insurance claims processing, online teaching, media content supply, among others.

Skilled manpower and multi lingual capabilities combined with the advantages of lower

costs can help the country to emerge as a frontrunner in KPO, globally. Increasing

adoption of technology in the domestic industries is already beginning to reflect in their

enhanced performance and competitiveness.


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Policies for IT Industry

IT Policy in Indiacan be divided intotwo distinctperiods.

1. From the mid-1960sthrough the early1990s, policies wereaimedat achievingtechnological self-sufficiency through state

productionand regulation of private production.

2. The second period, from 1990s, saw a shift in focus to

extensive liberalization and promotion of IT industry in India.

Period from mid 1960 to early 1990 further dividedinto

1960s and 1970s: Indigenizationand self-sufficiency

India was motivated to develop self-sufficiency in computers and

electronics largely by national security concerns related to border

conflicts with China and Pakistan. The government created an

Electronics Comm ittee to devise a strategy for achieving self-

sufficiency in electronics. The main vehicle chosen to gain

access to advanced computer technology was negotiation with

multinationals, primarily IBM, which accounted for 70% of all computers

installedin Indiafrom 1960 to 1972.

In an attempt to satisfy the governments interest in

developing domestic production, both IBM and the British owned

ICL (International Computers Limited) began to refurbish used

computers in Indian plants and sell them to Indian customers.

IBM felt that India should evolve technologically from one level of

sophisticationto the next.

A 1966 report by the Electronics Comm ittee objected to step-

by-step technological evolution and recommended that India

should leap ahead to the latest technologies. The

government, however, failed to impose its will on IBM


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due to the companys strong position with users and export

earnings. The governments early attempts to regulate the IT

sectorworsened the degree of technological backwardness.

In 1966, the responsibility for implementing the Electronics

Comm ittee report strategies was given to the Department of

Defense Supplies, with monitoring by a new agency, the

Electric Comm ittee of India.

In 1971, the government announced the formation of the

Department of Electronics (DoE) and a new Electronics

Commission, responsible for policy formulation and overseeing the

day to day implementation of policies.

In 1975, the DoE was given power over the licensing of

computer imports. The first step it took was the establishment of

Santa Cruz Electronics Export Processing Zone (SEEPZ) near

Bombay, followed by the creation of the state-owned ECIL

(Electronics Corporation of India Ltd.) as a national champion in

minicomputerproduction.

In 1975, in a landmark development, the US computer

maker, Burroughs, entered into a joint venture with Tata

Consultancy Services to export software and printers from

SEEPZ. In the same year, the government established theComputer Maintenance Corporation(CMC) with alegal monopoly on

the maintenance of all foreign computer systems in the country,

reducing the advantage that IBM had with computer users.

In 1978, due to increasing political pressure, IBM quit India. This

was a seminal event, illustrating the extent of

governments ability to exert its power over multinational

corporations and to direct the IT development in India. One

effect of IBMs departure was to open the market to a numberof

competitors, including ECIL, ICL and TataBurroughs.


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1980s: Partial liberalization and industry promotion

Indias IT policies in the 1980s were aimed at modernizing an

industry estimated to be about 15 years behind the current

frontiers of research and production. In a departure from the

import substitution approach of the past, exports software and

peripherals were now promoted and the import of mainframes

and supercomputers was encouraged undercertainconditions.

The new computer policy of 1984 The new computer policy of

1984 announced by DoE (Government of India Department of

Electronics, 1984) was aimed at promoting the

manufacturing of computers, based on the latest technology, at

prices comparable to international levels and with

progressively increased indigenization. An important policy

change was the liberalization of imports to foster domestic

hardware. Duty levels were lowered on components needed by

computer manufacturers, and companies producing CPUs,

peripherals and subsystems were permitted liberal imports of

know-how with a low exciseduty.

1986 Software Policy - Following up on the 1984 hardware

policy, the DoE announced the 1986 Policy on Computer

Software Export, Software Development and Training

(Government of India Department of Electronics, 1986). The

main objectives of the policy were to promote the integrated

development of software in the country for domestic as well as

export markets, to promote the use of computers as tools for

decision making, and to promote appropriate applications that

would catalyzeeconomicdevelopmentsoftware imports.

Though Indias IT Policies have focused heavily on regulation of

foreign as well as domestic producers and on protection of the

domestic market, the 1984 and 1986 policies consisted


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mostly of loosening of the existing regulations. A number of

programs, initiatives and institutions have been established to

implementpolicy and promote variousaspects of IT.

In 1988, the National Informatics Center set up NICNET, a

satellite-based computer communication network connecting

439 cities and towns to support computerization of

governments at the central, state and district levels. A

Computer Aided Design project was set up with links to five

centers, and a ComputerAided Management Infrastructure has been

established with feeder centers in four cities. A number of projects

have been undertaken to promote IT use in public and private

sectors and to mobilize a favorablebiastowards itsuse.

The governments attempts to spur the development of an

indigenous IT industry have been quite successful. After the

1984 Computer Policy announcement, production shot up by

100% while prices declined by 50%. A boom in minicomputersales

began when HCL dropped its prices dramatically, starting a pricewar

that greatly increasedthe affordability of PCs.

Period from 1991 After Liberalization in IT

industry

During this period, the IT policy was greatly affected by changes in

industrial policy.

In1990, a 100% income tax exemption was extended to

profits from software exports, and the double taxation of

software imports was eliminated.

Information Technology Business in India from a small sector to a

large and growing industry.This change in status is leading to a major

shift in paradigm.


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SWOT ANALYSIS

Strengths

Highly skilled human resource

Low wage structure

Quality of work

Initiatives taken by the Government

(setting up Hi-Tech Parks and

implementation of e-governance

projects)

Many global players have set-up

operations in India like Microsoft,

Oracle, Adobe, etc.

Following Quality Standards such as ISO

9000, SEI CMM etc.

English-speaking professionals

Cost competitiveness

Quality telecommunications

infrastructure

Indian time zone (24 x 7 services to the

global customers). Time difference

between India and America is

approximately 12 hours, which is

beneficial for outsourcing of work.

Weaknesses

Absence of practical knowledge

Dearth of suitable candidates

Less Research and Development

Contribution of IT sector to Indias GDP is still

rather small.

Employee salaries in IT sector are increasing

tremendously. Low wages benefit will soon

come to an end.


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Opportunities

High quality IT education market

Increasing number of working age

people

India 's well developed soft

infrastructure

Upcoming International Players in the

market

Threats

Lack of data security systems

Countries like China and Philippines with

qualified workforce making efforts to

overcome the English language barrier

IT development concentrated in a few

cities only

Opportunity segments with IT services


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No of competitors

Software industry consists of numerous players, because of the rivalry will be more

intense. Presence of a large number of players in industry leads to competition and

rivalry among companies. Threat from rivalry and competition poses a threat to

domestic companies.

Industry growthIndian software industry has registered a strong rate in the past few years.

Outsourcing has played a major role in the growth of Indian software industry.

Software export has registered a very strong annual average growth rate of 45%

during past years. Software industry is one of fastest growing industry in India.

Degree of differentiation

Industrys offerings are undifferentiated which leads to high rivalry. Industry players

are providing equivalent after sales services, which includes installation, training etc.

Exit barriersExit barriers for existing software companies are low as the initial capital

requirement is low in software industry.

Clints switching costWhen clients switching cost is low, industry rivalry is more intense. Clients are

articulate for their need and generally ask for customized product. So switching from

one product to another is not taken place generally and if they switch, they generally

Factors

Competitors Rivalry

AttractivenessHigh Medium Low

No of competitors High

Industry growth High

Degree of differentiation Low

Exit Barriers Low

Clients switching cost Low


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go for the software which suits to their current platform and configuration and prefer

the same vendor. So, for customized software, clients switching cost is low.

2.BARGAINING POWER OF SUPPLIERS (LOW)

Factors Suppliers power

AttractivenessHigh Medium Low

Availability of vast talent

pool- fresher and

experience

High

Skill differentiation Low

Buyers concentration High

Availability of vast talent pool

Software professional are widely present across the globe, including fresher and

experience which provide employers high benefit to recruit at competitive salary

package. There is a large supply of trained and educated professionals.

Skill differentiation

There is a low skill differentiation among the software professionals which makes

the employers able to switch human resources.

Buyer concentration When buyers concentration is high, suppliers power is low,

employer are more concentrated & focused for their required human resource skill.

Other factors which make the suppliers power low are due to slow down, job cuts

and layoffs.

3.Bargaining power of customers (High)

Factors

Buyers Power Attractiveness

High Medium Low

Buyers switching Low


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cost

Buyers

concentration

High

Buyers price

sensitivity

High

Buyers information

availability

High

Buyers switching cost

When clients switching cost is low, buyers power is higher. Clients are articulate

for their need & generally ask for customized product. So switching from one product

to another is not taken place generally and thus buyers switching cost is low where as

it is high for buying products at the organization level as it requires high investment in

terms of money as well time. Employees do not accept the change easily which affects

their productivity.

Buyers concentration

If buyers are concentrated compared to sellers, if there are few buyers and many

sellers buyer power is high. Generally buyers go for customized software, on timeinvestment, which makes them more concentrated & focused for their required human

resource skill.Other factors which make the suppliers power low are due to slow down,

job cuts and layoffs.

Buyers price sensitivity

If the consumer is price sensitive & well educated regarding the product, the

buyer power is high. Market is highly price conscious & promotion driven. Outsourcing

has major role in Indian software industry; international clients are more prices

sensitive.

Buyers information availability

As the software products are developed based on clients requirements, buyers

are well informed about the software products. Other factors affecting

1. Threats of new entrants (High)


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Factors

Threat of New Entrants Attractiveness

High Medium Low

Differentiation Low

Brand

establishment

Low

Initial capital

investment

Low

Clients switching

cost

Low

Economies of scale Moderate

Differentiation

Highly differentiated products or well known brand names are both barriers to

entry that can lower the threat to new entrants. Differentiation can be done in many

ways but its costly for the company. Industry offerings are undifferentiated which leads

to high rivalry. Industry players are providing equivalent after sale services, which

includes installation, training etc.

Brand establishment

In software industry, branded products do not have any impact on clients

requirement. Thus, brand establishment is low & which makes low barrier for new

entrants.

Initial capital investment

Initial capital investment is low in establishing new company in software industry.

Software industry is based on intellectual property & thus it does not require higher

capital investment.


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Economies of scale

Due to financial crisis, many companies share their human resource skill to

handle more than one project. By resource sharing they develop more software

products. Thus an economy of scale is moderate. Another reason for high threat of

new entrants are favorable government policies. Location is one of the favorable

factors as such location does not have any major impact on soft ware development &

target market.

Threat of substitutes

There is no close substitute of software.


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COMPETITIVENESS OF THE INDIAN ECONOMY

Competitiveness rankings

India and China are major global economies, and other non-OECD countries are

rapidly joining them. The changing business landscape is a major challenge formultinational firms, including IT firms, to use these economies as export bases and to

access their markets. One dimension of this changing business landscape is captured in

international competitiveness rankings, which clearly show that despite their high growth

rates these countries still have some way to go before they become competitive bases

and markets for global firms. For example, before the global recession, international

rankings such as the Global Competitiveness Report, 2007 (World Economic Forum),

ranked India as 48th amongst 131 countries. China, Russia and Brazil were 34th, 58th, and

77th respectively.6 Similarly the IMD World Competitiveness Yearbook 2007 and 2008

provide rankings by: economic performance, government efficiency, business efficiency

and infrastructure. This ranked India 29 out of 55 countries, while China was 17 th in 2008(Table 1).

India ranked 44th out of 122 countries in the networked readiness index of 2006-07,

and Chinas position was 59th based on the Global Information Technology Report (WEF,

2006-07). Other driving factors for India are cost effectiveness, quality assurance, supply

of technical graduates, availability of an adequate telecommunication infrastructure and a

favourable time zone relative to the United States and Europe. While multinationals such

as IBM, Accenture, Electronic Data Systems and Deloitte are rapidly expanding in India

using its low-cost, high quality labour force, Indian firms, providing high-end consulting

services, are growing in the United States and Europe. These competitiveness reports

illustrate Indias comparative advantage in various areas and its importance in the world

market.Table 1. IMD World Competitiveness Scoreboard, 2007-08

Score 2008 Country Rank 2007 Rank 2008(Total 55 (Total 55countries) countries)

100 United States 1 199 Singapore 2 295 Hong Kong, 3 3

China84 Luxembourg 4 584 Denmark 5 690 Switzerland 6 480 Netherlands 8 1082 Sweden 9 974 China 15 1761 India 27 2966 France 28 2546 Russia 43 4749 Brazil 49 43


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Source:IMD World Competitiveness Year Book, 2007 and 2008.

As to the future, India has a very large pool of high quality manpower compared with

other countries. The competitive advantage in skilled, low cost, highly productive workers

is reflected in a projection for 2020 (Figure 1). India is ahead in supplying a quality labourforce compared with countries such as Mexico, the Philippines, Israel, Ireland and Brazil.

In recent years, the emergence of these alternative locations and maintaining the supply

of quality human capital to meet increasing demand have been seen to be the key

challenges in maintaining Indian IT sector competitiveness.

Figure 1. Indias competitive advantage vis--vis other nations


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GROWTH OF THE IT INDUSTRY

The majority of IT / ITeS activities are concentrated in seven Indian cities/clusters.

Bangalore has been saturated owing to the infrastructure limits (transport and utilities,

especially electricity, a common problem throughout India) and the scarcity of land.Hyderabad and Chennai are now alternative locations in the south. The geographical

spread of IT / ITeS activity is gradually expanding to cover cities such as Ahmedabad,

Bhubhaneswar, Chandigarh, Coimbatore, Jaipur, Kochi, Madurai, Mangalore, Mysore and

Trivandrum.

Stages of development

The government of India initiated a series of software export policies from the late

1960s7 (Schwere 1987, 1992; Sen 1995; Heeks 1996; OECD Information Technology

Outlook 2000;Kumar and Joseph 2005; Mathur 2007a, b). Nevertheless, various policies

during the 1970s and 1980s protected domestic hardware and restricted competitiveness

and growth.8 In 1986, the government announced a new policy to develop a strong

software sector, followed in 1988 with the World Market Policy and the establishment of

the Software Technology Park from India (STPI) scheme. The National Taskforce on

Information Technology and Software Development (NTITSD) was established in 1998 to

formulate long-term plans and remove impediments to the growth of the IT sector. In2000, the formation of the Ministry of Information Technology was another step in

promoting these initiatives. A Task Force on Human Resource Development was

established to develop long-term strategies to increase the number of well-trained IT

professionals. More recent initiatives include upgrades to the Education and Research

Network (ERNET) connecting various universities and regional engineering colleges

(RECs), lowering customs duties on IT products, allowing 100% foreign investment and

passing the Information Technology Act, 2000.

The growth path

The Indian IT sector has grown at a remarkable rate over the last decade. The growth

is predominantly in IT services, but the hardware has also grown in recent years. Figure 3

presents the performance of the industry in both domestic and export markets in the

period 1998-2007. In 2008-09, 9 total revenue was USD 72 billion; the industry employed

2 million people and contributed 5.8% to GDP. The NASSCOM-Crisil report (2007)

calculated that: Every rupee spent by the IT-ITeS sector (on domestically sourced goods


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and services) translates into a total output of INR 2 in the economy. Also for every job that

is created in this sector, four jobs are created in the rest of the economy. In this section

we first focus on the software, services and Business Process Outsourcing segment,

followed by a discussion of the hardware and electronics segments for both domestic and

external sectors.

Domestic demand

The domestic market in IT has started to emerge from the shadows of the exportsegment. The overall size of domestic demand, comprising hardware, software and

services (IT-BPO), grew by 29% in 2005-06, and was USD 15.9 billion in 2006-07.Spending on software and services (IT-BPO) was greater than total spending onhardware for the first time in 2005-06 and is expected to continue increasing its share in2006-07.10 Banking, financial, services and insurance (BFSI), manufacturing, railways,telecom, and government are the key vertical markets driving growth in domestic ITspending across categories which include hardware systems, networking, storage,security, enterprise application products and related services.

Software and services

Domestic demand has shifted from hardware towards a solutions-oriented approach,

with a growing emphasis on services. In the early years, software firms were mostlysoftware solution providers. Manufacturing of packaged products with high value-addedalong with sustained improvement in quality, investing in manpower and a competitiveR&D environment has helped them gradually move up the value chain both in thedomestic and export sectors.


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Business process outsourcing (BPO)

The demand for BPO has shown noticeable growth in the domestic sector over thepast few years. BFSI, telecom and consumer durables have been early domestic adoptersof BPO services and currently account for about three-quarters of this market. Anincreasing number of Indian brands such as Infovision, HTMT Global Solutions and Bharti

Airtel are investing in quality customer care and gradually adopting global best practicesin the booming domestic market. Education, retail and healthcare have startedcontributing to growth in this sector, and increasing competition and growing emphasis oncustomer satisfaction is also driving public sector organisations towards BPO. Forexample, Air India outsourced its domestic customer service operations to third-partyproviders and Indian Railways announced its plans to establish Railway EnquiryFranchisees across the country. The success of these early initiatives by the public sectoris of critical importance to the domestic BPO sector.

Hardware and consumer electronics

The Indian hardware segment mostly caters for the domestic market. Hardwareaccounted for about 49% of total domestic IT-BPO spending with revenue growing atapproximately 17%, and personal computers, notebooks, and servers leading hardwarespending. In the hardware segment, many multinationals are establishing plant in India. Inthis respect, India has started competing with China as a hub for original equipmentmanufacturers (OEMs). Various initiatives have been introduced to improve theinvestment climate and remove bureaucratic delays in hardware exports in the currentfive-year plan.

Exports of software and services

During 2008-09, electronics and IT exports were estimated by NASSCOM to bearound USD 47 billion, compared with USD 41 billion in 2007-08. Tata ConsultingServices (TCS), Infosys and Wipro are the top three exporters, and only six ofNASSCOMs Top 20 IT software and services exporter are MNE affiliates. There aremany examples of advanced software products from top firms. TCS has launchedpackaged software for the banking, insurance, securities, accounting and health careindustries. Banking software from Infosys (Bankaway, Financle and Payaway) has beenwidely adopted. Wipro Technologies has introduced Teleprodigy, a billing system for ISPs,and WebSecure, an Internet security package. Many smaller, highly specialised Indian

firms are developing software in banking, financial and accounting in the United States,the United Kingdom and Europe. While the United States and the United Kingdom remainthe dominant markets for IT-ITeS exports, other markets are growing. Leadingmultinational firms also have extensive operations in India.


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Exports of Business Process Outsourcing (BPO)

In the last decade, India has been the leading source for offshore service supply, andis estimated to account for 65% of the global industry in offshore IT and 46% of the globalBPO industry. BPO exports were estimated to be around USD 8.3 billion in 2007. TheUnited Kingdom is the major market within the EU, particularly for finance and accounting(F&A) services, customer interaction services, human resource administration (HRA) anda wide range of other specific services. The Indian BPO firms include 3iInfoTech, MindtreeConsulting, NIIT SmartServe, Perot Systems, Hewitt Associates, and Infinite ComputerSolutions. Knowledge Processing Operations (KPO) is also becoming a significantmarket. MNCs are setting up third party captive units of data analysis, data modeling.Indias share in global KPO revenues is estimated to be 60-70%, Call centres, insuranceclaims processing, legal databases, digital content development, online education,medical transcription, data digitisation, payroll/HR services and web services are otherproducts where India has started specialising in the world market.

.

Emerging economies trade in ICT goods, 1997-2007

(USD millions, current prices)


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Export revenues (including Hardware) estimated to reach USD 69.1 billion in FY2012

growing by over 16 per cent; Domestic revenues (including Hardware) at about USD 31.7

billion, growing by over 9 per cent.


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Information Technology and Indias

Economic Development

The success of Indias software industry on the global stage has

captured the imagination ofI

ndians in a way that only cricket andhockey successes could in the past. Indians (or people of Indian

origin) have become leaders of, as well as contributors to, the

information technology (IT) revolution in the United States,

reinforcing the impression that India is world class in IT. At the

same time, India remains a developing country, with levels of

human development for the masses that put it in the same league as

sub-Saharan Africa. From this perspective, Indias IT success

represents the emergence of another elite enclave, with

increased inequalitythe result.

IT and Development

The IT sector can be an important source of growth for India if

the country has a comparative advantage in providing certain kinds

of IT-related products and services, if the global demand for these

products and servicesis likely to grow rapidlyand

The first two of these conditions seem to be well established,

though they merit some discussion of future possibilities,

particularly with respect to the reasons for and the dynamics ofIndiascomparativeadvantage in thissector.

One of the most interesting issues, which we wish to

emphasizehere, is the thirdcondition, of spilloverbenefits.This is the

area where the IT sector may be special,and not justanotherexport

enclave.

The DomesticMarket

The domestic market for IT products and services is not

independent of the export market.

The nature of information goods in general is that they

involve high fixed costs of production and low marginal costs.

While customization and service provision mitigate this property, they

do not negate it.


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Reputation and experience effects, on the other hand,

enhance the importance of economies of scale and scope. Hence it

is important for Indian software firms to compete

simultaneously in domestic and export markets, in order to take

advantage of these economies. This is true even though the

product-service mix that is being sold in different markets is going tobe somewhat different.

Since Indian software firms can compete successfully

abroad, they should also be able to succeed in their own

backyard. In fact, they have advantages in the domestic market,

knowing theircustomers better, and beingcloserto them.

On the other hand, a poor domestic infrastructure,

dependence on imported hardware, late mover disadvantages,

and lack of economies of scale and learning by doing, can allreduce or eliminate any advantage that Indian software firms

mighthave overforeigncompetitors.

Two mitigating factors operate on potential disadvantages of

Indianfirms.

First, some of the problems are faced by all firms,

irrespective of location: for example, entering the market for

desktop operating systems in the face of Microsofts dominance is

difficult, ifnot impossible, for any firm anywhere in the world.

`Second, the boundary lines between domestic and foreign can

be blurred when multinationals have Indian subsidiaries, particularly

for IT or IT-enabled services. In such cases, the effects on the local

economy are not that different from when these services are

providedby Indian firms. Two differences in the case of multinationals,

however, are in profit repatriation and the creation of another

brain drain channel, if Indian employees ofmultinationals can be

assignedto othercountries.

Atthe level of businesssoftware and software services,therefore,

It seems that issues for the domestic market boil down to

the same concerns as for export markets. These are availability of

the key inputs, namely various types of skilled IT personnel and

managerial and marketingskills.


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right combination of people, knowledge, experience and reputationto

compete successfully.

Location and ownershipare not of direct importance,but are only

proxies for whether the IT software and servicesproviderhas the

Hardware may offer additional opportunities to Indian IT firms in the

domesticmarket.

In developed countries, the establishment of the PC market

took place before the Internet took off. In a good example of

complementarities, however, the growth of the Internet has

increasedthe demand for PCs and other access devices.

Internet access is probably the most attractive use for many

potential consumers of IT in India but Internet penetration may

not go far enough with hardware designed for developed

countries.

While Internet use is beginning to grow rapidly, the number

of subscribers remains minuscule, estimated at 1.8 million in

December 2000.

The main reasons for this backwardness have been thegovernment long-standing monopoly, through VSNL, of

the countrys Internetgateways, as well as the general poor state

and highcost of the telecoms infrastructure.

The removal of the VSNL monopoly in 2002 marks a process

that began a few years earlier, with NASSCOM lobbying resulting

in private ISPs being allowed to set up their own international

gateways startingin 2000.

The possibility of designing and building lower-cost access

hardware in India may represent an opportunity for the domestic

IT industry.

While India has tried to develop a domestic hardware

industry since the 1980s, it has not succeeded in establishing an


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industrythat is efficientand globally competitive.

We note once more that Dell is a profitable company

because it serves targeted markets efficiently, not because it

manufactures sophisticated components. Instead, management

and infrastructureare the key inputsthat are required.

Internet access is probably the most attractive use for many

potential consumers of IT in India but Internet penetration may

not go far enough with hardware designed for developed

countries.

While Internet use is beginning to grow rapidly, the number

of subscribers remains minuscule, estimated at 1.8 million inDecember 2000.

The main reasons for this backwardness have been the

government long-standing monopoly, through VSNL, of

the countrys Internetgateways, as well as the general poor state

and highcost of the telecoms infrastructure.

The removal of the VSNL monopoly in 2002 marks a process

that began a few years earlier, with NASSCOM lobbying resultingin private ISPs being allowed to set up their own international

gateways startingin 2000.

The possibility of designing and building lower-cost access

hardware in India may represent an opportunity for the domestic

IT industry.

While India has tried to develop a domestic hardware

industry since the 1980s, it has not succeeded in establishing anindustrythat is efficientand globally competitive.


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Quality Aspects

Software companies in India improved their quality tremendously

in the last few years. Today they are known for the quality of their

software services. India has one of the largest numbers of quality

Certified software companies in the world. The increasing quality

perception will help India transcend the cost barrier and increase

margins in offshore business. There are several quality standards,

which a software company can obtain.

There are about 170 software companies in India with

quality certification. 15 Indian companies now have the SEI CMM

Level 5 certification (out of 23 worldwide). Apart from globalrecognition and quality assurance, government policy also

tends to be favorable to companies holding quality certificate.

According to EXIM policy software companies with ISO

9000 series or equivalent certification are eligible for grant

of Special Import Licenses(SILs).


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Core competencies of IT Industry of India

1. Availability of LargeHuman Resources

Every year, approximately 19 million students are enrolled in high

schools and 10 million students in pre-graduate degree courses

across India. Moreover, 2.1 million graduates and 0.3 million

postgraduates pass out of India'snon-engineeringcolleges.While

2.5-3 percent of them find jobs in other fields or pursue further

studiesabroad, the rest opt for employment in the IT industry.

2. Indian EducationSystem

The Indian education system places strong emphasis on

mathematics and science, resulting in a large number of science

and engineering graduates. Mastery over quantitative concepts

coupled with English proficiency has resulted in a skill set that hasenabled the country to take advantage of the current

international demand for IT.

3. QualityManpower

Indian programmers are known for their strong technical skills and

their eagerness to accommodate clients. In some cases,

clients outsource work to get access to more specialized

engineeringtalent,particularly in the area of telecommunications.

4. GovernmentPolicies

IT is a part of government's national agenda and all policies aredriven to achieve maximum benefit to their industry. The reformshave reduced licensing requirements and made foreigntechnology accessible. The reforms have also removedrestrictions on investment and made the process of investmenteasier The government is actively promoting FDI, investmentsfrom NRIs (Non-Resident Indians) including Overseas CorporateBodies (OCB's) owned by the NRIs. FDI can be brought in through the

automatic route, based on powers accorded to the Reserve Bankof India. Till 1994, DOT was the sole provider of basic telecomservices in IndiaThe new National Telecom Policy has opened the field for private

participants. The IT Bill passed in 2000 provides a legal

framework for the recognition of electronic contracts, prevention of

computer crimes, electronic filing of documents, etc

Amendments have also been proposed in the Indian Evidence Act,


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IndianPenal Code and the RBI Act.The IPR law in India.

5. Costof Labourand resources

The comparative cost advantage that India provides in terms of

availability of cheap labour and resources as compared to the

European or US market makes companies to outsource portion of

theirbusinessto these destination.

6. Technologicaladvances & Dot-Combust

Before the dot com boom, many multinational companies

invested a large sum of money in laying the underline cables for

inter-continental communication. But after the dot-com bust

many of these companies went bankrupt leaving handing down

the large network of communication lines at dirt cheap prices.This brought down the prices of inter-continental communication by

a large factor. With availability of new communication

technologies companies find it easier to manage their business

spread across the globe. This also provided the companies to

move a part of their non-core business to low cost locations like

Indiaand gainthe cost advantage.


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Risk Factors

1. Manpower availability and cost

India has more than 1,900 institutions from which about 70,000

software professionals graduate each year. This is further

supplemented by private training centers which coach about 40-

45,000 students each year. With many students opting for further

studies/ other employment streams and several overlap between

students at institutions and training centers, it is estimated that

India can supply about 75,000 software professionals each year.

Despite this huge addition to the manpower base each year, the

demand-supply situation is expected to remain tight during the

next 3years. The excess of demand over supply will further push

salary levels upward. Salary levels for experienced and qualifiedprofessionals are broadly at par with developed countries. The

rising cost of manpower has already eroded India's position as a

cheap source of labor to a large extent. This increases the risk of

losing business to competingcountries like China and Russia who

have cheaper labor, if they would be able to match the quality

Indian professionals offer. Moreover, to maintain profitability on the

increased cost, software companies will have to increase productivity

i.e. maximizes revenue/profits per employee. Till the time Indian

software companies are able to move up the value chain to

products and transcend the cost barrier, they carry a risk of Low

profitability.

2. Manpower turnover

It is essential that an organization keeps employee turnover to a

minimum, so as to maximize on productivity. This is even more

important if an employee has to undergo initial training to

develop specific skills. Employee turnover occurs as employees

show little respect for continuity with a single organization andeven employers actively 'poach' from competing companies by

offering more lucrative salaries. Most software companies have

been providing various incentives and stock option schemes to

retain talent, especially at senior levels. Organizations also have to

provide betterworking facilities to motivate employees to put in their

best.


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3. Skill and experience levels

Indian programmers have a wide range of skills, with experience on

legacy systems and on latest platforms as well. They have also

displayed an ability to learn and adapt quickly to the changing

environment. However, about 77% of the software professionals in

India have a work experience of less of 7years. Corporate

therefore need to continuously invest in training to improve skill levels

further, especially in the area of functional domains.

4. Availability of infrastructure

The current boom in the software sector can be sustainedthrough an

increase in offshore programm ing activity. This places specialemphasis on availability of quality infrastructure facilities in the

form of hardware/software, power and telecom links. India's

power and telecom infrastructure is poor compared to many

developing countries. On top of that power and telecom costs are

among the highest in the world. One of the prime reasons for this

has been the state monopoly over these sectors. The attempts at

privatizing these institutions have not improved the situation in a

significant manner. For software companies, investing in telecom

infrastructure is an additional overhead, which few companies will beableto afford.

5. Poor government demand

In most developed countries government/public sector enterprises

constitute the largest consumers of IT. In India public sector

companies are generally reluctant to introduce IT in a major way, as

this would antagonize the trade unions. Public sector

companies' policies also tend to be pro-labor. The software sector

therefore receives negligible encouragement from the publicsector unlike most of the leading IT countries in the world.

6. Governmentpolicies

Government policies so far have been favorable to software

companies. If tax exemption on exports is withdrawn it could

affect software companiesadversely.


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7. Financing

Software companies require finance for setting up development

centers, establishing communication links and other infrastructure

and for working capital. Traditionally, lenders have been averse to

project finance due to lack of tangible assets as security. Therecent spurt in share prices of all the listed software companies

reflects the confidence amongst investors. This should enable

software companies to raise adequate finance in the form of

equity. But government has to set machinery in place to provide

software companies with venture capital, project and lease

financeetc.

8. Quality

India has gradually moved into high quality but competitive cost

bracket. Currently, many of the large companies hold quality

certificates. However, there are various quality levels and

standards. Moreover Indian companies need to pay more

attention to Total Quality Management and not just Production

process quality.

9. IPR

Indian companies have to move up the value chain to become

truly global companies. This requires a strong policy on IPR and

strictenforcement procedures. Uniformity of IPR policies with the

'target countries' will also help Indian companies to improve

export prospects.


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Direct impact of IT to Indian economy

The current and evolving role of IT/ITES industry in Indias

economy is well established.The sector is proving to be the major

growth pole within the services sector, which in turn drives

several economic indicators of growth in the country.

A few key indicators of directcontributionare:

Growing share ofthecountrysGDP:The sectors contribution to the countrys GDP has been steadily

increasingfrom a share of 1.2% in FY98to 5.5% in FY11.

Boostingthe foreign exchange reserve of thecountry:Export earnings in FY11 stood at approximately USD 40.0 billion with

a growth of 36%.

Employmentgeneration:Direct employment in the sector is expected to be 2.0 million by end

of FY11, growing at a CAGR of 26% in the last decade, making

it the largest employer in the organized private sector of the

country.


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Indirectimpact ofIT industry to

Indian economy

Additional employment generation: The indirect employment

generated, at the rate of 4 additional jobs created in the

economy for every 1 job created in the sector, is even more

socially relevant as nearly 75% of the workforce employed in

those additional jobs are SSC/HSC orless educated.

Driving growth of other sectors of the economy:

Apart from contributing to the growing income of its direct

stakeholders (promoters, shareholders and employees), theIT/ITES industry has had a multiplier effect on other sectors ofthe

economy with an output multiplier of almost 2 through its non-

wage operating expenses, capital expenditure and consumption

spending by professionals. Study show that USD

15.85 billion spent by the IT/ITES industry in the domestic

economy in FY06 generate an additional output of USD 15.5

billion.

Encouragingbalanced regional development:

By gradually spreading their business operations to smaller Tier

II/III cities, the IT sector (besides generating revenue and

employment) is also assisting in improving the supply of talent

pool and development of physical and social infrastructure,

either directly by themselves or by spurring the Government to

action.

Fuelling the growth of PE/VC funding: The worldwide dot

com boom and growth in the IT sector kick-started VC activity

in India which led to the creation of first generation ofIndia centricVC funds. Other sectors, such as healthcare, manufacturing and

financial services have also benefitted from this phenomenon as

these sectors are now also being able to access this source of

funding. While IT/ITES continues to be the


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favourite sector with the largest share (28%) of PE/VC funding,

other sectors now account for 72% share as compared to 34% in

2000.

Spurring first generation entrepreneurship: Corporate India

consisted of eitherlargefamily owned businessesormultinational

companiestill the advent of the IT/ITES industry,and it was rare to

see a first generation entrepreneur. The shift of focus from

physical capital to intellectual capital and theadvent of the PE/VC

funding enableda largenumberof firstgenerationentrepreneurs

with no wealthto try theirhand atstartingnew enterprises.The

demonstrated success of theseentrepreneurs created an

aspirationamong the middleclassand spurred them to exploit

theirpotential with confidence.

Improvingthe product/service quality level: The fact that

IT/ITES companiescater to and compete with global playershas

ledto theiradoptingthe highestqualitystandards. This high

quality of servicesand products has been the driver

and sustainerof growth which has helpedmove Indiaout of the

mediocrity, low quality imageand has in factraisedthe barfor

other industriesas well. Indianexports had traditionally

been restrictedto low end, low-technologyorientedproducts like

gems and jewelleriesand garments/apparels.I

t is with theadvent of IT/ITES industrythat the world began to recognize that

Indianproducts and servicescouldalsocompete and win against

global competitorson qualityparameters. India is now also

emergingas a research and developmentcentre for some of the

large IT/ITES companies in the world, once again demonstrating

that Indianow stands for quality.

30% of companiesworldwide who have reached Level 5 of

Capability MaturityModel Integration (CMMI) are Indian IT/ITES

firms and nearly75% of Fortune 500 and 50% of Global 2000

corporationssource theirtechnologyrelatedservicesfrom India

with an increasingnumberof MNCsoutlining theirinvestment

plans for settingup R&D operations

in India.


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Front runner in practicing good corporate

governance:

The industryhas been a front runner in practicinggood

corporate governance and theircomm itmentto infuse it in

theirbusinessactivitieshave ledto a creatinga positive

pressure within the industry,as well as in other industries,withmore and more companiesadoptingglobal standards in corporate

governance practices.

The majorIT/ITES companies in Indiahave in recent times

receivednational and international recognition for their

corporate governance initiatives.

Boosting the image of India in the global market:

The India IT/ITES industryhas contributedto what brand India

stands for in todaysglobal market. While India Inc.has beenwitnessingan acquisitionspree of overseas companies in recent

years,the IT/ITES sector has ledthisphenomenon with

the highestshare (23%) of outbound M&A deals in 2006. Listing of

Indian IT/ITES companies in global stock exchanges, which requires

adherence to stringentglobal accountingnorms, has helpedbuild

a strong brand of the companiesand the sectoroutsideIndia.


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GOVERNMENT INITIATIVE

The IT sector plays a major role in the Indian economy. Some major policychanges in improving human capital, exports, and e-governance arehighlighted below, including recent initiatives by NASSCOM.

Human capital

Investment in human capital is the most important initiative. Many initiativeshave taken place at different levels. The National Council for Education Researchand Training (NCERT) introduced the National Curriculum Framework SchoolEducation in 2000. Major objectives of this framework include the use ofcomputers in the curriculum, enhancing learning opportunities by using ICT acrossthe curriculum, designing curriculum with inter-disciplinary and cross-disciplinaryareas.

Export promotion

In order to promote exports, the Indian Government has initiated severalschemes to attract and encourage manufacture and export. Free Trade Zonesprovide competitive infrastructure facilities, duty free imports of capital goods, rawmaterials, components and other inputs, tax holidays for exports and access todomestic markets. These include Export Oriented Units (EOUs) within ExportProcessing Zones (EPZ), Electronic Hardware Technology Parks (EHTP), andSoftware Technology Parks (STP).

Special Economic Zones (SEZs)

The objective of the SEZs is to provide an export environment, with lowerregulations on taxes, duties, labour laws and business infrastructure. Under theAct, SEZs can be developed either jointly or separately by the central government,state government, or any individual party (including private parties). Units may beset up in a SEZ for the manufacture of goods and rendering of services. All theimport/export operations of the SEZ units are on a self-certification basis. The unitsinvolved are a net foreign exchange earner, not subject to any pre-determinedvalue addition or minimum export performance requirements.

Software Tecnology Parks (STPs)

The STP is a non-profit society under the Ministry of InformationTechnology to promote and facilitate exports of software. Each STP offers allstatutory services and high speed data connectivity to its member firms as 100%export-orientated units. There are now 47 centres spread across the countryassisting about 6 500 software exporting firms. In 2000, a new STP wasdeveloped in Silicon Valley, with a view to facilitate software exports by small andmedium-sized firms to the United States. The STPs, contributed 88% of Indiaselectronics and computer software / services exports in 2005-06, and have beenthe largest contributor since 2000-01 .Similar services are being provided to

electronic hardware exporting firms under the Electronic Hardware TechnologyParks (EHTP) scheme.


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National e-Governance Plan (NeGP)

The Government of India accords high priority to improve the quality of the citizensby providing basic services at their doorsteps and has formulated a National e-

Governance Plan (NeGP) covering 27 Mission Mode Projects and eight supportcomponents to be implemented at Central, State and Local Government levels, at anestimated cost of Rs. 23,000 crore over five years. At the State level, the MissionMode Projects (MMP) would include services like road transport, land records,commercial taxes, employment exchanges, agriculture, civil supplies, treasuries,land registration, policy and education, while at Central level, it will cover areas suchas insurance, central excise, National ID, pensions, e-Posts, banking, passport, visaand income tax.

State Wide Area Networks (SWANs)

The Government has approved a Scheme for establishing State Wide AreaNetworks (SWANs) across the country in 29 States/ 6 UTs with a total outlay ofRs.3,334 crore over a period of five years. The Scheme envisages to providetechnical and financial assistance to States for establishing SWANs from StateHeadquarters upto the Block level with a minimum bandwidth capacity of 2 Mbps.32 SWAN proposals from States and UTs have been approved.

State Data Centre(SDC) has been identified as one of the important elementsof the core infrastructure for supporting e-Governance initiatives under NEGP. It isproposed to create data repositories/ data centres in various States/UTs so thatcommon secured data storage could be maintained to serve host of e-Governanceapplications. The policyguidelines for technical and financial assistance to theStates for setting up of State Data Centres have been circulated to the States. TheGovernment has approved the Scheme in January 2008 at an estimated cost ofRs. 1623.20 crore to cover 28 States/6 UTs across the country.

Other government initiatives

Mode Projects (MMP) at state level include the use of IT services around roadtransport, land records, commercial taxes, employment exchanges, agriculture, civilsupplies, treasuries, land registration and in education. At the central governmentlevel they include areas such as insurance, national ID, pensions, banking,passport and visa services and income tax. The government has recentlyapproved 100 000 broadband Internet common service centres (CSCs) in ruralareas. Introduction of non-English software has started and needs to be extendedto cover a large section of the non-English speaking population.

Foreign Trade Policy

India welcomes investors in Electronics and IT sector. Government of India isstriving to bring greater transparency in policies and procedures to provide an

investor friendly platform.


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In general, all Electronics and IT products are freely importable, with theexception of some defence related items. All Electronics and IT products, in

general, are freely exportable, with the exception of a small negative list which

includes items such as high power microwave tubes, high end super

computer and data processing security equipment. Second hand capital goods are freely importable.

Export Promotion Capital Goods scheme (EPCG) allows import of capitalgoods on payment of 5% customs duty. The export obligation under EPCG

Scheme can also be fulfilled by the supply of Information Technology

Agreement (ITA-1) items to the DTA provided the realization is in free foreign

exchange.

Special Economic Zones (SEZs) are being set up to enable hassle freemanufacturing and trading for export purposes. Sales from Domestic Tariff

Area (DTA) to SEZs are being treated as physical export. This entitlesdomestic suppliers to Drawback/ DEPB benefits, CST exemption and Service

Tax exemption.

Supplies of Information Technology Agreement (ITA-1) items and notified zeroduty telecom/electronic items in the Domestic Tariff Area (DTA) by

EOU/EHTP/STP/SEZ units are counted for the purpose of fulfillment of

positive Net Foreign Exchange Earnings (NFE).

The import of second hand computers including personal computers andlaptops are restricted for imports. However, second hand computers, laptops

and computer peripherals including printer, plotter, scanner, monitor,

keyboard and storage units can be imported freely as donations by the

following category of donees, subject to the condition that the goods shall not

be used for any commercial purposes and are non-transferable:

School run by Central or State Government or a local body Educational Institution run on non-commercial basis by any

organisation

Registered Charitable Hospital Public Library Public funded Research and Development Establishment

Community Information Centre run by the Central or State Governmentor local bodies

Adult Education Centre run by the Central or State Government or alocal body

Organisation of the Central or State Government or a Union Territory

Foreign Direct Investment Policy for Information Technology

FDI upto 100 percent is permitted for E-Commerce activities subject to the conditionthat such companies would divest 26 percent of their equity in favour of the Indian


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public in five years, if these companies are listed in other parts of the world. Suchcompanies would engage only in business to business (B2B) E-Commerce and notin retail trading, inter alia, implying that existing restrictions on FDI in domestictrading would be applicable to E- Commerce as well.

Export Promotion Schemes

Special schemes are available for setting up Export Oriented Units for theElectronics/IT Sector. These schemes are:

Export Oriented Unit (EOU) Scheme Electronics Hardware Technology Park (EHTP) Scheme Software Technology Park (STP) Scheme Special Economic Zones (SEZ) Scheme

Export promotion Capital Goods (EPCG) Scheme Duty Exemption and Remission Scheme

EOU/EHTP/STP Schemes

Units undertaking to export their entire production of goods and services, exceptpermissible sales in the Domestic Tariff Area (DTA), may be set up under the EOU,EHTP or STP Scheme for manufacture of goods, including repair, re-making, re-conditioning, re-engineering and rendering of services. Trading units, however, arenot covered under these schemes. 100% Foreign Direct Investment is permitted

through automatic route for the units set up under these schemes. EOU/EHTP/STPunits may import and/or procure from the DTA or bonded warehouses in DTA,without payment of duty, all types of goods, including capital goods, required for itsactivities, provided they are not prohibited items of import in the ITC(HS). The unitsshall also be permitted to import goods including capital goods required for theapproved activity, free of cost or on loan/lease from clients. An EOU/EHTP/STP unitmay, on the basis of a firm contract between the parties, source the capital goodsfrom a domestic/foreign leasing company without payment of customs/excise duty.EOU/EHTP/STP unit shall be a positive net foreign exchange earner. Net ForeignExchange Earnings (NFE) shall be calculated cumulatively in blocks of five years,starting from the commencement of production. The donation of computers,

imported/indigenously procured duty free by EOU/STP/EHTP units to recognizednon-commercial educational institutions, registered charitable hospitals, publiclibraries, public funded research and development establishments, etc., two yearsafter their import/procurement and use by the said units is permitted.

Supplies of Information Technology Agreement (ITA-1) items and notified zero dutytelecom/electronic items effected from EOU/EHTP/STP units to DTA will be countedfor the purpose of fulfillment of positive NFE. EOU/EHTP/STP units are permittedDTA access upto 50% of the FOB value of exports subject to fulfillment of positiveNFE on payment of concessional duties. Depreciation upto 100% is permissible to

computers and computer peripherals over a period of 5 years.


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Export Promotion Capital Goods (EPCG) Scheme

The EPCG Scheme allows import of capital goods for pre-production, production andpost-production (including CKD/SKD thereof) at 5% customs duty subject to anexport obligation equivalent to 8 times of duty saved on capital goods imported, to be

fulfilled over a period of 8 years. The capital goods shall include spares (includingrefurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds. Secondhand capital goods without any restrictions on age may also be imported under theEPCG Scheme. The export obligation can also be fulfilled by the supply of ITA-1items to the DTA provided the realization is in free foreign exchange.

SPECIAL ROLE OF NASSCOM

To extend Indias global IT-ITeS reach, the NASSCOM and industry havetaken several initiatives to enhance the availability of and access to suitable talent

for IT-ITeS in India. These initiatives include:

Special Economic Zones for education

NASSCOM has suggested experimenting with adapting the Special EconomicZone concept (deregulation and removal of restrictions) for education, and creatingSpecial Education Zones. However, long-term steps are required, including muchhigher government investment in education, major education reform, and bettercompensation and research grants for teachers/researchers (NASSCOM, 2006a).

Memorandum of Understanding with University Grants Commission and

All India Council forTechnical Education

NASSCOM, in combination with the University Grants Commission (UGC) andthe All India Council for Technical Education (AICTE), has signed a Memorandumof Understanding (MoU), to strengthen professional education in meetingincreasing demand in the sector through changes in curricula, faculty andinfrastructure.

Industry-University Partnerships

NASSCOM in its IT Workforce Development (ITWD) initiative is also working

with academia across the country to encourage and facilitate greater industryinteraction, share relevant feedback, stay updated on industry developments andgiving encouragement to changes in curriculum and teaching.

Certification Program for Frontline Management

Under the NASSCOMs Executive Development Programme (NEDP),NASSCOM and QAI the leading quality consultancy in India introduced theCertification Program for Frontline Management in the ITeS-BPO sector. Theprogram was launched nationally in five major cities - Delhi, Mumbai, Bangalore,

Chennai, and Hyderabad - in 2005 and is being extended to other cities.


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National Assessment of Competence (NAC)

NASSCOM has launched the NAC program for potential employees in theBPO segment. NAC is an industry standard assessment and certification program,which ensures the transformation of a trainable workforce into an employable

workforce.

National Skills Registry (NSR)

In dealing with issues such as governance, physical security, businesscontinuity, logical security, safeguarding IP, software change management andpersonnel security both for employees and clients more effectively, NASSCOM incollaboration with the National Securities Depository Limited (NSDL) introducedthe NSR scheme in 2006. This is a national database of employees working inIT/BPO industry in India. This database contains third party verified personal,qualification and career information on IT professionals.

Data Security Council of India (DSCI)

NASSCOM is involved in making the Indian Information Security environmentcomparable to the world standard. As a part of its trusted sourcing initiative,NASSCOM is in the process of introducing the Data Security Council of India(DSCI), a Self Regulatory Organisation (SRO) to establish, popularise, monitorand enforce privacy and data protection standards for the ITeS-BPOsegment (NASSCOM,2007b). The Indian Computer Emergency Response team(CERT-In) provides incident prevention and response services under theDepartment of Information Technology.

Key challenges

The Indian IT sector plays a significant role in the global market. In recentyears, competition has intensified with China, Latin America, Eastern Europe andother countries such as Egypt establishing themselves as outsourcing centres, andmajor global firms (e.g., Accenture, HP Services and IBM Global Services)establishing delivery centres in India. Manpower supply constraints, a smallnumber of large firms dominating the industry, high tariff and import duties, lackof commercialisation of domestic R&D and lack of adoption in key vertical sectorssuch as agriculture, education and healthcare are seen as major limitations for this

sector.

For India to fully capitalise on the opportunity and sustain growth in the globalIT-ITeS market and in the IT sector in general, timely and coherent execution ofinitiatives to address supply-side concerns are needed in a wide range of areas.Priority areas are described below.

Improving the supply of quality human capital

Human resource development (HDR) is the key area in supplying qualityskilled workers for global and local markets, and various initiatives have

been introduced to restructure educational institutions. In most firms,around 80% of recruitment is made at the entry level and 80% of the total


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training budget is spent on these employees (NASSCOM-Deloitte, 2008).Many states have established Indian Institutes of Information Technology(IITs) as centres of excellence, to overcome shortages of employablelabour in the IT sector. Changing school and university curricula;providing incentives to academics; promoting industry-academia

partnerships; introducing bridge courses for managers; expandingcapacity of world class institutions (e.g., IITs, IIMs and IISc) are amongstsuch initiatives.

Creating world-class infrastructure and bridging the digital divide

Major cities (Tier I/II cities such as Bangalore, Mumbai, Delhi, Pune etc.)are already witnessing signs of strain. Tier III/IV cities (such as Mysore,Manglore, Nagpur, Indore, Bhubneshwar and Kolkata) need developmentof adequate infrastructure with modern facilities (transport, particularlyroads, and utilities). Public-private partnerships have been initiated and

investment in an increasing number of engineering colleges, housing,transport facilities is underway, but many of these initiatives need furthersupport.

Telecommunications infrastructure and regulatory challenges

While some states of India clearly benefit from advancedtelecommunications infrastructures, others are lagging. Further reforms tobridge the gap between urban and rural connectivity, efficient spectrummanagement and a market-based regulatory framework are key regulatorymeasures. To maintain a sustainable level of investment in this sector,policy measures need to improve the regulatory environment; for exampledelivery of data services is extremely poor due to low spectrumcoverage, and Internet access and broadband density is poorcompared to countries such as China and Brazil.

The TRAI Act (1997) was somewhat ambiguous with regard to themandate of the National Regulatory Authority. This was amended in2000 to clarify t

Role of Information Technology in Indianeconomy

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